What Investors Want

May 24, 2010

According to SEI, investors in the U.S. and Europe are looking for alternatives to mainstream management:

…a restless and empowered investor base is demanding greater transparency and liquidity from managers, while focusing on absolute returns and uncorrelated investment strategies. This combination of factors is driving convergence of traditional and alternative investment products, with investors pouring more than $110 billion into alternative mutual funds in the U.S. and Europe in 2009 alone.

Alternative strategies can come in a lot of flavors, but according to the SEI study:

A diverse group of strategies and managers are already experiencing success with these products in the U.S. and Europe. Successful strategies include long/short, global tactical asset allocation, volatility arbitrage, and managed futures.

Apparently we are part of a diverse group of managers experiencing success! Clients have certainly embraced our global tactical asset allocation solutions like our Global Macro separate accounts, the Arrow DWA Balanced Fund, and the Arrow DWA Tactical Fund.

Leave a Comment » | Markets, Tactical Asset Alloc | Permalink
Posted by Mike Moody

You Call It a Bubble, I Call It Ringing the Register

May 24, 2010

—-attributed to Dave Steckler, former president of AAPTA

Over the weekend I read Michael Lewis’s new book, The Big Short. This is not going to be a book review, although the book is a lot of fun. It is the story of a few offbeat money managers who identified subprime CDOs as a good shorting opportunity and went on to make a lot of money. Lots of people, of course, could tell housing was overheated, but didn’t get the timing right or couldn’t find the right vehicles to execute the short position properly. In fact, one of the success stories in the book identified the overheated subprime market in 2005, took his short position, and then suffered massive redemptions and threats of investor lawsuits as he waited for the position to pay off. For the few success stories, how many other investors trying to short the market got gored?

Trend following strategies don’t attempt to predict bubbles. Instead, they are happy to play along with the trend until it shows signs of reversing. It doesn’t require prediction and you don’t run the risk of blowing up waiting for your (hopefully) correct forecast to pay off.

Now some academics have tackled this question. Is it better to play the bubble or to short it? CXO Advisory helpfully has a nice summary of their results. They write:

In summary, evidence indicates that riding industry asset bubbles (guided only by information on returns and fundamentals from the past ten years) may be an attractive investing strategy. Evidence does not support shorting bubbles.

In short, the trend is still your friend. While you sound much more intelligent discussing all of the reasons behind the bubble and what will happen when it pops, you will make more money going with the trend.

2 Comments | Markets, Thought Process | Permalink
Posted by Mike Moody

DWA 100,000 — New Highs!

May 24, 2010

No, this isn’t the price level on some new-fangled unweighted index. It’s the number of views we’ve had of our blog over the past year or so. In the meantime, we have garnered positive reviews from Barron’s and numerous referrals from other respected websites like Abnormal Returns and World Beta. We appreciate that you and thousands of other investors have made our blog into one of your financial sites of choice and one of the thought leaders in relative strength investing. We will try to continue to provide you with original content, articles, and news pertaining to relative strength and global trends, and to continue to give you our unique spin on the relative strength style of investing.

When I wrote a similar post, DWA 25,000, I mentioned that we wanted to deliver even more value down the road in the form of audiovisual presentations. We’ve done that with new podcasts and on-screen presentations. Check them out! Another valuable and educational feature has been our white papers on important topics like asset class rotation. In everything we do, our intent is to inform, entertain, and provoke thought and discussion. We think we are succeeding, but if you have constructive feedback, we’d love to hear from you. Success is never final and we’re always looking for ways to improve.

Leave a Comment » | Off-Topic | Permalink
Posted by Mike Moody

Weekly RS Recap

May 24, 2010

The table below shows the performance of a universe of mid and large cap U.S. equities, broken down by relative strength decile and quartile and then compared to the universe return. Those at the top of the ranks are those stocks which have the best intermediate-term relative strength. Relative strength strategies buy securities that have strong intermediate-term relative strength and hold them as long as they remain strong.

Last week’s performance (5/17/10 – 5/21/10) is as follows:

High RS stocks underperformed the universe during the sharp sell-off last week.

Leave a Comment » | Markets | Permalink
Posted by Andy Hyer